Tesla (NASDAQ: TSLA) stock lost more than a quarter of its value last month. This brings the decline since 17 December to 39%.
Of course, long-term shareholders are used to this — Tesla and volatility go together like lightning and thunder! And the stock is still up 525% over five years.
However, things do appear to be changing with the Tesla story, and not in a good way.
A perfect contradiction
On 2 January, I made two market predictions for 2025. The first was that the FTSE 100 would rise for a fifth straight year. So far it’s up 8.4%, so appears to be on course for that (though there’s plenty of time for that to unravel!). The second was that Tesla stock would crash 40% — it’s down 27% so far.
Until recently, the Tesla share price was surging skywards because Elon Musk had backed the successful election campaign of Donald Trump. The assumption was that the incoming administration would streamline regulations on autonomous vehicles (AVs), helping Tesla’s plans for a robotaxi network. Trump also pledged to prevent Chinese electric vehicles (EVs) from flooding the US market.
However, I wrote that “well before [AVs] hit the road though, a Trump administration is also likely get rid of the $7,500 in tax credits that US consumers receive when they buy an eligible EV. And this will surely hurt demand for EVs“.
Trump has repeatedly downplayed climate change and opposes EV subsidies, which seems to perfectly contradict Tesla’s green energy mission.
Moreover, the firm’s customer base is composed of many environmentally conscious individuals who are unlikely to align with Trump. So I can’t see how Musk’s polarising political views are good for car sales. Given this, I found it bizarre that Tesla stock surged almost 100% following the US election.
Issues weighing on Tesla
Now, it’s hard to precisely quantify the brand damage done to Tesla. Some of it might be exaggerated for political purposes in the media. But in January, Tesla’s European sales plunged 45% year on year, while the overall EV market in Europe rose 37%.
Undoubtedly, the company’s facing intense competition from China’s BYD. Speaking of which, China remains a crucial growth market for Tesla. But if Musk’s support for Trump becomes entangled with escalating US-China tensions, the US firm could face regulatory hurdles or consumer boycotts in the world’s second-largest economy.
Not for me
Short selling is where investors bet against a stock by borrowing and selling it, hoping to buy it back later at a lower price. However, it can be very risky because the stock might surge, leaving investors with huge losses. This is why I wouldn’t ever short Tesla stock, despite it still appearing overvalued on a forward-looking price-to-earnings ratio of 99.
It would only take one bullish tweet from Musk around robotaxis to send the share price soaring 20%. For example, he could confirm that the company has received a licence to operate them in a particular state.
I remain fascinated with the long-term potential of Tesla’s Optimus robots, as that could be a truly massive market. However, with many technological challenges remaining, it appears to be one for the 2030s.
As things stand, I can’t justify investing in the stock at today’s valuation.
